If David Stockman’s op-ed in The New York Times is an accurate summation of his new book, The Great Deformation: The Corruption of Capitalism in America, then it is likely most useful as a warning of What May Be rather than What Must Be or What Is. Certainly a future where government grows ever bigger and more intrusive would not bode well for either personal freedom or increased prosperity. Bank bailouts, Obamacare, rising debt, and unreformed Medicare are certainly worrisome harbingers. Stockman:
So the Main Street economy is failing while Washington is piling a soaring debt burden on our descendants, unable to rein in either the warfare state or the welfare state or raise the taxes needed to pay the nation’s bills. By default, the Fed has resorted to a radical, uncharted spree of money printing. But the flood of liquidity, instead of spurring banks to lend and corporations to spend, has stayed trapped in the canyons of Wall Street, where it is inflating yet another unsustainable bubble.
When it bursts, there will be no new round of bailouts like the ones the banks got in 2008. Instead, America will descend into an era of zero-sum austerity and virulent political conflict, extinguishing even today’s feeble remnants of economic growth.
THIS dyspeptic prospect results from the fact that we are now state-wrecked. With only brief interruptions, we’ve had eight decades of increasingly frenetic fiscal and monetary policy activism intended to counter the cyclical bumps and grinds of the free market and its purported tendency to underproduce jobs and economic output. The toll has been heavy.
I don’t know. Stockman offers an essentially Austrian (and anti-monetarist/Milton Friedman) critique of US economic history. While that school of economic thought has much to offer on political economy — and Stockman has much wisdom here about Wall Street and entitlements — less so when it comes to monetary policy and business cycles.
Despite eight decades of bad policy, as Stockman sees it, average Americans are ten times richer than they were back then, and the American economy remains the most innovative on the planet. And while the US should reform its entitlement system, we are not on the precipice of a debt crisis.
For me, the most helpful policy lens to judge America’s future economic prospects is that created by economist Deirdre McCloskey, what she calls the “Bourgeois Deal”: “You let me engage in innovation and creative destruction, and I will make you rich.” As long as that bargain remains intact, as it has for more two centuries, then America’s prospects are far from bleak.
And Stockman does provide some reason to be concerned. But he also seems to be saying the sun has been setting on America from the very moment it emerged as a global economic superpower. That misses quite a bit over the past century and ignores many encouraging signs for the future. But I look forward to reading his full argument.